4 ECONOMIC APPRAISAL

4.1 INTRODUCTION

This section reviews the economic status and market prospects of the seaweed industry in the Western Isles and addresses the following objectives.

i) To assess the current and future economic values of Ascophyllum harvesting and tangle collection to the economy of the Western Isles.

ii) To assess the existing and future opportunities for seaweed and seaweed products from the Western Isles.

Current activities and planned ventures are examined and set within the context of the historical development of the industry on the islands. The various markets for seaweed and seaweed products are then assessed, with consideration given to potential competitors and barriers to market entry. Finally the market opportunities for the Western Isles are evaluated.

4.2 SEAWEED PRODUCTION IN THE WESTERN ISLES

4.2.1 Historical

The Western Isles seaweed industry has seen three distinct phases:

i) the production of kelp for use in the glass and soap industries;

ii) the production of kelp as a source of iodine;

iii) the use of seaweed as raw material for the alginate industry.

The 'kelp industry' embraced the first two phases and in Scotland lasted from the early 18th century to the 1930s. The Western Isles have supplied seaweed to the alginate industry over a number of years now although the amount of seaweed currently harvested for this purpose is substantially less than at its peak in the 1970s when the operation of three primary processing plants in the Western Isles (Keose, Sponish and Orosay) provided an estimated £550,000 per year to the local economy. By the end of the 70's AIL were also importing dried brown seaweed (various species) from Norway, Iceland, South Africa, Australia, Chile and (experimentally) the Falklands. Essentially it was competition from alternative, cheaper sources of dried seaweed providing quality algin that led to the plant closures in the Western Isles.

When both factories in the Uists (Sponish and Orosay) were operational before the latter's closure in 1980, they jointly employed around 45-50 staff, processing around 12,000 t (wet)/year. In addition to Ascophyllum the Orosay plant also milled tangle, Laminaria spp collected as drift weed and dried initially in the open air. At this time there may have been around 200-250 people involved in the Western Isles seaweed industry including seaweed collectors.

Following the Sponish closure in 1986, Kelco took some 2000 t (wet) Ascophyllum from the Uists in the following year for delivery to a new processing facility they had installed at the Girvan factory. Projections of increasing supply in 1988 and in subsequent years foundered on difficulties over transport costs which again rendered the Western Isles supply of weed relatively uncompetitive according to Kelco. Thus the projected increases did not materialise.

4.2.2 Current

a) Seaweed sold to Kelco

At present around 3000-4000 t (wet)/year of Ascophyllum are harvested in the Uists and sold to Kelco via a local haulier who transports the wet weed to the Girvan plant. There are seven cutters at present for whom this trade provides steady employment. They currently receive £14.70/t from the haulier, with Kelco paying ca £45-50/t for the wet weed delivered to Girvan. Ferry transportation is believed to cost ca £12/t.

A new washing and milling plant for Ascophyllum is to be located near Creagorry in Benbecula. The plant will add some value to the weed supplied to Kelco and make transportation easier. Kelco have made the commitment to take similar quantities of weed from the plant to those currently supplied, with the prospects of increased tonnages up to a level of around 7-8,000 t wet weight equivalent . The plant will safeguard the employment of the seven existing seaweed cutters, with a further seven or eight cutters providing lesser amounts of weed in the first year of the factory's operations. The factory itself will employ three people.

In addition to Ascophyllum Kelco also buy air-dried tangle from the Uists in small amounts. The tangle are Laminaria species, principally L. hyperborea, cast ashore during the winter months. Some 35 people are involved in its collection, though few of them collect on any scale. The stipes are laid out to dry during the winter and purchased by Kelco in April-May at a current price of £157/t (dry) to the harvester. The amount purchased in 1994 was ca 220 t (dry). Kelco are thought to buy around 1500 t (dry) of tangle per annum from all sources, though this represents only a small percentage of the total seaweed processed at the Barcaldine plant.

A local company (Atlantic Resource Development) has plans to use a conveyor belt system to sort the cast weed and remove the stipes. Kelco have agreed in principle to buy up to a certain quantity of weed if the system works.

Despite speculation recently regarding the future of Kelco which is being sold off by its parent company, the Merck Corporation, Kelco are optimistic about the continuation of their activities in Scotland where they employ ca 230 staff at Girvan and some 90-100 at Barcaldine. They claim to have increased their total purchase of seaweed from Scotland by ca 20% this year with a further increase likely next year.

b) Other

The former Kelco owned factory at Keose on Lewis was taken over in 1980 by a workers' co-operative, but is now owned by a local businessman and trades under the name of Tavay Organic Products Ltd. This company sells dried seaweed to buyers who use it in the production of soil conditioners and fertilisers, although they have not revealed the amount of seaweed they currently harvest or the number and identity of their buyers in the fertiliser sector. The company harvests and processes Ascophyllum and currently employs 10-15 people on a full-time basis. These staff are mobile, and are either used as cutters or in the factory itself. If the plant were operating to capacity some 20-25 personnel would be required.

4.2.3 Economic Value

The numbers of people currently employed in supplying seaweed from the Western Isles to outside buyers are summarised in Table 4.1 below. These figures should be taken as approximate, particularly with regard to the numbers involved in tangle collection. It should be noted that seaweed cutters and lorry drivers are not engaged in seaweed related activities on a full-time basis.

TABLE 4.1 Numbers employed in the supply of seaweed from the Western Isles (1994)

Nature of Employment

Direct/Indirect Employer

Regular

Occasional

Tavay Organic Products Ltd, Keose

- cutters/plant operators

10-15

Kelco

- Ascophyllum cutters

- tangle collectors

- lorry drivers

7-8

3

ca 35

Total

20-26

ca 35

These numbers are expected to increase to around 60-75 overall in 1995 when the proposed new washing/milling plant on Benbecula and the semi-automated tangle collection by Atlantic Resource Development begin operations, with around 25-30 of those in regular employment.

Estimates of the current economic value of seaweed to the Western Isles .

The value of wet Ascophyllum and air-dried tangle from the Western Isles delivered to Kelco's alginate production plants on mainland Scotland is believed to be of the order of £200,000-£250,000 per annum, with income for harvesters/collectors representing some £80,000-£90,000 (32-45%) of this figure. Revenues for the Keose operations are less certain; a speculative estimate would put these somewhere between £70,000-£200,000. In very broad terms then, total gross income from seaweed in 1994 would appear to lie somewhere between £270,000-£450,000, with a probability that the true figure lies towards the lower end of this range.

4.2.4 Comparison with Production Elsewhere

The annual harvest of brown seaweeds in Scotland represents a very small percentage of total production figures on a global basis and even at a European level (Figure 4.1).

FIGURE 4.1 Harvesting of brown seaweed in Europe in 1991

Norway is by far the major European producer and, outside of the Far East where there is intensive cultivation of seaweed (including brown algae) for food, Norway is also the world's number one producer of brown seaweed.

French statistics may undervalue current production given the level of both cultivation and harvesting of wild stocks in France. Over the period 1988-1990, French production was around 100,000 t (wet) each year.

There is no indication of Irish production in Food & Agriculture Organisation (FAO) statistics, although one estimate puts it at 62,000 t (wet) for 1979, though the figure now is probably substantially less. In Western Europe the ranking order in terms of size of harvest of brown seaweeds would be:

1

Norway

2

France

3

Ireland

4

Iceland

5

Scotland

6

Spain

4.3 MARKETS FOR SEAWEEDS AND ASSOCIATED PRODUCTS

4.3.1 Alginates and Other Phycocolloids

a) General Remarks

The term phycocolloid is used to refer to three main products (alginate, carrageenan and agar) which are extracted from seaweed. The estimated world market value for phycocolloids is US $550 million (around £350 million at current exchange rates). Table 4.2 below provides a breakdown of global market size and value.

European output of phycocolloids is estimated to have an annual wholesale value of around £154 million which is 97.5% of the total for all algal products in Europe.

b) Carrageenan

Carrageenan is extracted from various species of red algae including Chondrus crispus and Mastocarpus stellatus both of which are found in the Western Isles although only small quantities are present. Carrageenan is used to gel, thicken or suspend, most frequently in food production, especially dairy products. The principal suppliers of seaweed for carrageenan extraction are the Philippines, Canada, Chile and Europe.

While production from other countries has been fairly static in the last 20 years, seaweed farming in the Philippines has grown steadily during this period, and this country is now the source of over half the world's supply of seaweed used in carrageenan production.

TABLE 4.3 Global production of carrageenan seaweed in tonnes

Country

1971

1979

1984

Philippines

500

14,000

25,000

Canada

6,000

5,700

5,000

Chile

4,000

6,000

6,000

Indonesia

4,000

3,500

3,000

Other

5,500

4,500

4,500

Total

20,000

33,700

43,500

The development of seaweed culture in the Philippines has helped to stabilise supplies and prices in this sector, and throughout the 1980s production capacity moderately exceeded demand. With regard to carrageenan itself, around 90% of the world's supply comes from five processors in Denmark, France and USA.

c) Agar

Agar is produced principally from Gelidium spp and Gracilaria spp, although a number of other algae can serve as a raw material. Asia and Latin America together accounted for ca 80% of world production in 1980. Other producers include Korea, Japan and Chile, with Spain the dominant supplier in Europe. There are no commercially exploitable stocks of relevant algae in the UK.

High grade agar is used extensively as a bacteriological medium and in cell culture. Lower quality agar is used primarily in the food and pharmaceutical industries, frequently as a gelling agent, preservative or stabiliser. With most seaweed for commercial agar production harvested by hand and only limited attempts at phycoculture, there has recently been a shortage of both agar on the world market. This has contributed to the considerably higher value of agar compared to that of alginate and carrageenan (Table 4.2).

d) Alginate

Alginate is extracted from large brown seaweeds from regions with water temperatures of ca 20_C or less. Lower viscosity alginate is also produced from warm water species. In terms of volume of supply Macrocystis, Laminaria and Ascophyllum are the most significant algae (all cold water species). Today Kelco are the largest producer of alginate, with the major competitors located in Norway, France, Japan and China .

Many countries supply seaweed as a raw material to the alginate industry. These include USA, Mexico, Chile, Scotland, Ireland, France, Norway, Iceland, Canada, China, Japan, Korea, Australia and South Africa

In China and Japan Laminaria is cultivated intensively, although the bulk of production is distributed to the higher value food sector in the Orient. In Europe however the bulk of brown seaweeds harvested are sold to the alginate industry with relatively minor amounts used as raw materials in other sectors such as fertilisers, food, pharmaceuticals, etc.

There are several hundred applications for alginate in a variety of industries. Its main uses are as a thickening or suspension agent, gel and film formation, stabiliser, binding agent and for water retention

Below is a breakdown of alginate use by sector:

TABLE 4.4 Principal uses of alginate

Sector

% of Quantity of

Total Demand

Textile printing

Food

Paper

Welding rods

Pharmaceuticals

Other

50

30

6

5

5

4

100

In general terms the alginate market can be characterised as relatively stable. New applications for alginate (and other phycocolloids) are likely in the food sector due to continuing product diversity and in the development of pharmaceutical products. This will be balanced by some decline in demand in the textiles, paper and welding rods sectors.

The development of synthetic equivalents to alginate (biogums) provides a degree of competition to the alginate sector. However, biogums and alginate tend to be each more suited to certain applications. Kelco are, in fact, the world's largest manufacturer of biogums and thus have a strong hold on the market for alginate and its equivalents. In the longer term there is a clear possibility that the size of the alginate market may be radically reduced as a result of the development of synthetic substitutes.

For suppliers of brown seaweed, such as the Western Isles, the alginate sector can be viewed as a low value/high volume market when compared to other prospective markets. In Europe phycocolloids (mainly alginate) easily represent the major sales outlet in volume and value for the major producing countries.

The reliance of the Western Isles seaweed industry on a single buyer brings inherent dangers of the industry collapsing should Kelco's situation or requirements change. What then are the prospects of selling to other buyers within the alginate sector?

If the possibility of selling to the alginate producers in China and Japan is excluded due to the very high transportation costs and the abundance of local supplies of raw material, then the major players in a European context who would come into consideration include Protan A/S (Norway), Sanofi Bio-Industries and Sobalg (both France).

Sanofi purchase ca 35,000-40,000 t (wet)/year of seaweed (Laminaria digitata, L. hyperborea, Fucus serratus). All their supplies come from France. It is thought unlikely that they would source weed outside France or that the Western Isles could act as a competitive supplier even if this were the case.

Protan A/S are described as the world's second largest producer of alginate after Kelco. The vast bulk of their raw material is produced in Norway where the company undertakes mechanised harvesting of both Ascophyllum nodosum and L. hyperborea. Again, it is unlikely that the Western Isles which harvests the same species could compete with local supplies.

Overall the alginate sector is dominated by a small number of large producers. In the long-term the growth in the Chinese industry might threaten the output and consequently the demand for seaweed from companies like Kelco and Protan. However, at the moment Chinese alginate is less refined and therefore of lower quality and value.

Thus the prospects of selling seaweed from the Western Isles in any substantial volume to alginate producers other than Kelco are limited. Not only are Kelco the largest producer on the market, they are also the only one with a major production operation relatively close to the Western Isles, thus limiting to some extent the costs involved in transportation. In addition, it is possible that Kelco would not allow sales to their competitors without the threat of excluding the Western Isles from their list of suppliers.

Assuming that the immediate future of Kelco's production operations in Scotland is secure, then what opportunity is there to sell more seaweed to Kelco?

Kelco estimate that current supplies of Ascophyllum from the Western Isles (3-4,000 t (wet)/year) represent ca 1-2% of total seaweed of various types which they purchase for their production operations worldwide. The total demand for their Scottish factories is ca 80,000-100,000 t (wet)/year, so the Western Isles output would in fact equate to around 3-5% of this figure.

The company purchases a variety of seaweed types from different countries including Australia, Chile and Ireland, and possibly Norway and Iceland, as well as Scotland. Southern hemisphere species clearly cost more to transport to Scotland. However, they contain up to twice or more the algin content of Ascophyllum and tangle, which offsets the transportation costs. Additionally they are air-dried in low humidity climates producing value added raw material at a lower price than was the case at the former Kelco drying plants in the Western Isles, with their fuel and other operational costs.

According to Kelco, Western Isles seaweed is middle range in algin content and near the top of the price range when this is measured in relation to algin content.

In order to effect a major increase in the Western Isles' share of the seaweed supplied to Kelco's Scottish factories, it is likely they would have to supply weed more competitively than Ireland (and possibly other European sources). It is thought that Ireland has in the past generally been a cheaper and more competitive supplier of Ascophyllum than the Western Isles, although this may be due to direct or indirect subsidies. Other European producers of Ascophyllum such as Norway and Iceland benefit from greater efficiency in harvesting through mechanisation. Overall, it is difficult to imagine a significant increase in the Western Isles' share of supply to Kelco.

In conclusion it is worth stressing the following points:

· Phycocolloids, especially alginate, represent by far the largest market for European seaweed.

· The alginate industry is and at least in the short-term will continue to be the major outlet for Western Isles seaweed.

· The other main phycocolloids, i.e. carrageenan and agar, are of no immediate relevance to the Western Isles as a market for seaweed.

· Prospects of selling Western Isles seaweed to alginate producers other than Kelco are limited.

· Only a moderate increase in the share of supply to Kelco is likely to be feasible.

· Supplies to the alginate sector can serve as the basis to sustain a seaweed industry in the Western Isles while lower volume/higher value markets are pursued.

4.3.2 Fertilisers

Liquid seaweed extracts obtained from brown algae are exploited commercially as fertilisers or as a base for these and related products. In Europe Ascophyllum nodosum is the seaweed most commonly used in this way, although Laminaria spp and Fucus serratus are also utilised. These algae contain important trace elements as well as biologically active compounds, principally cytokinins, which promote growth.

Seaweed concentrates are marketed to agricultural and horticultural farmers/growers and also to the retail gardening sector. Normally seaweed extracts are diluted and sprayed over crops and plants. They can also be mixed with pesticides before being applied as a foliar spray. Most manufacturers concentrate on promoting their products' ability to enhance growth and improve crop yield, and also stress the enhanced visual appearance of fruit, vegetables and ornamental plants in the horticultural and gardening sectors.

Seaweed extracts represent a very small percentage of the overall fertiliser market in each of the sectors referred to above. In the UK the market leader in the production of seaweed based fertilisers is Maxicrop International Ltd who market a natural extract and also use this as a base for a range of seaweed based fertilisers suited to different crops, plants and soil conditions. Maxicrop export to a variety of countries. Like many of their competitors they use dried seaweed meal produced from Ascophyllum as their raw material. Maxicrop are thought to buy most if not all of their seaweed meal from Norway. Other companies with market share in the UK include Algea Produkter A/S (Norway), Goèmar (France) and, among UK suppliers, Chase Organics Ltd, Redicrop Ltd, Glenside Organics and Neptune.

Any Western Isles enterprise considering the market for seaweed based fertilisers would have three basic options:

i) Sell dried seaweed meal to manufacturers who would further process the meal to obtain liquid extract. The seaweed meal can also be sold as the basis for a soil conditioner.

ii) Sell liquid extract to manufacturers/other organisations for incorporation in their products or to sell as their own brand.

iii) Produce and retain the rights to a finished product/product range, perhaps contracting out areas like packaging and distribution.

The first option has been pursued by Tavay Organic Products. The price paid for dried seaweed meal lies roughly in the range of £250 to upwards of £300/t.

The main problems in relying solely on this market are limited market size and the level of competition. Only a small amount of seaweed meal is required to produce a litre of extract, and the UK market for seaweed meal in this sector may only be around 1000-2000 t. Ireland, Norway and France all have established suppliers selling into this market.

Producing liquid extract adds value to the product and widens the scope for selling into the fertiliser sector. Again, however, there is strong competition to UK/Irish suppliers from foreign companies shipping seaweed extract in bulk from France, South Africa and Australia. With regard to both seaweed meal and extract production capacity outstrips demand.

The third option outlined above would involve setting up in competition to existing manufacturers of seaweed based fertilisers rather than selling to them.

Sales to the agricultural sector are likely to be primarily through agrochemical wholesalers. In horticulture, distribution is liable to be mainly via wholesalers, and as with agriculture some scepticism may be encountered regarding the worth of seaweed products. Other market niches include organic farmers/growers, owners of parkland and sports grounds, and the gardening sector.

Promotion and the establishment of brand identity will be a major cost which could only be avoided by an exclusive distribution contract with a major retailer or other fertiliser supplier whereby the product was marketed under their name. Otherwise strong and innovative marketing as well as a substantial advertising budget will be required to gain market share.

In summary, there are opportunities to develop seaweed based fertilisers, but ideally this should be integrated with other seaweed developments. Size of market and established competitors are the major limitations where the sale of seaweed meal/extract to fertiliser producers are concerned. Any venture setting up in competition to such producers will also have to contend with strong and established competition and must reckon with a time lag before brand/product identity and credibility can be achieved.

4.3.3 Animal Nutrition

Seaweed is used both as an ingredient in animal feedstuffs and as a fodder supplement, although this market is now in decline. While Ascophyllum has traditionally been used in this area, there is no evidence to suggest it is more effective than other algae, and it is not likely to be profitable to pursue diversification into the market for animal feedstuffs.

4.3.4 Specialist Food Products

In Europe there has been a traditional but very localised and small scale use of seaweed as a food item in some coastal areas, eg in France (Brittany), Ireland, Scotland, Wales. In most cases such local usage has been declining for some time.

The following species have been used in Europe for human consumption either traditionally or more recently.

Chondrus crispus

Can be boiled to utilise thickening properties.

Palmaria palmata (dulse)

Can be eaten raw, dried or in powder form - as 'sea vegetable' or condiment.

Porphyra spp (laver)

Still popular in parts of south Wales in the form of 'laverbread'. The laver is boiled then minced to produce laverbread which is generally cooked in fat before consumption.

Laminaria spp

Can be eaten either fresh, dried or pickled. Also used in kelp tablets at the healthfood/medicinal interface.

Ascophyllum nodosum

Seaweed meal sometimes used as healthfood, though not a traditional use. Either mixed with water or added to bread dough.

Fucus vesiculosus

Boiled and used as a health drink.

Ulva lactuca

Added to soups or used in salads.

Alaria esculenta

Experimental large scale cultivation was carried out off the Isle of Man in the 1980s with attempts made to market this species and Laminaria saccharina in the food sector, eg seaweed crisps (see below).

It should be emphasised that in Europe the above species have been utilised as food only on a very small scale.

There have also been some limited attempts in the UK to exploit seaweed as a food on a commercial basis. In Wales several suppliers sell both fresh and tinned laverbread. In Scotland one individual on Colonsay sells small amounts of locally harvested dulse and laver, and small companies in Tain (Cromarty) and Orkney produce food products from seaweed. An attempt in the Isle of Man during the 1980s to market seaweed crisps as a novelty snack food was unsuccessful.

The one European country where the manufacture of food products from seaweed has gained any momentum is France, which produces almost all the algal foodstuffs produced in Europe and accounts for a quarter of the European consumption of such products. One French company (Bret'alg) produces seven different types of seaweed either fresh (preserved with sea-salt) or dried, which are sold through retail channels in packs or tubs of varied sizes

In the Far East, however, the value of seaweed for human consumption in the Far East is high. The population of this region consume more seaweed as food than the Western world uses for industrial and nutritional purposes together, and a high proportion of this production is via cultivation of edible species. In 1982 in Japan the end-user dry weight price for high quality food products was around £9,600-£45,000/t at current exchange value, which illustrates the very high value of this sector when compared to sales outlets for seaweed previously examined.

Table 4.5 below illustrates the vast difference between the market for seaweed as a food in Europe and the Far East.

TABLE 4.5 Global Consumption of Seaweed as Food

Consumption of Seaweed as Food (t dry weight)

Proportion in Relation to Total Seaweed Harvest

Japan

China

Korea

Taiwan

North America

Europe (except France)

France (1987)

97,000

71,000

10,000

3,000

240

70

27

97%

49%

93%

-

<1%

<1%

<1%

As far as the Western Isles is concerned, there is certainly the opportunity for a small business to develop food products and establish a base market in the UK/Europe with possible subsequent expansion into North America or the higher volume Far Eastern market.

Of the species found in the Western Isles red seaweeds and brown algae could be utilised for food products. The limited quantities of red seaweeds in the Western Isles might be enough to support the small scale development of food products as opposed to, say, supplying the carrageenan industry which would require larger amounts of raw material. While some limited sales of Ascophyllum meal into the food sector might be envisaged, other species appear more suited to the development of health and novelty foods which are the areas that market development in the UK/Europe would be best to concentrate on. Once established a company might also attempt to expand by exporting to the Far East market if seaweed stocks and production capacity allowed.

4.3.5 Cosmetics

Ground or powdered seaweed, as well as phycocolloids, are used in the manufacture of cosmetic products including soaps, shampoos, powders, creams and sprays. Very often the algal content of such products will be small, even where the use of seaweed is highlighted in the marketing of a product.

A variety of seaweeds are used in cosmetics. Among the brown algae Laminaria spp are among the most common, although the bladder wracks such as Fucus vesiculosus and Ascophyllum nodosum are also utilised. Chondrus crispus, Mastocarpus stellatus and Porphyra spp are some of the red algae which may be employed as cosmetic ingredients. Overall, though, the quantities of seaweed used in this sector are minimal.

In Europe, France has by far the most extensive use of seaweed in cosmetic products, with around 5,000 t (wet) processed in a variety of ways before sale to the cosmetic sector. In the UK several manufacturers of cosmetic products use small quantities of seaweed.

Wholesalers/suppliers in this sector are thought to pay ca £1/kg for seaweed meal made from fucoids. Laminarians can be more valuable, as can seaweed which is further processed beyond a basic meal. Generally UK suppliers only stock small quantities of seaweed. It is possible to sell direct to some manufacturers of cosmetic products.

The use of seaweed in cosmetic products is liable to increase as is the interest in health and fitness to the benefit of areas like thalassotherapy which utilises seaweed. Nevertheless, for the purposes of this study the cosmetics market should be viewed as high value but very low volume. The prospects of selling to the leading European market (France) are slim in the face of plentiful local supplies of seaweed in raw or processed form. French suppliers of processed weed would also represent established competition within the cosmetics sector in the UK and other European countries.

Sales of seaweed to the cosmetics sector could be a profitable and worthwhile exercise for an existing seaweed business in the Western Isles, but would not in itself generate sufficient revenue upon which to base a business.

4.4 Market Opportunities for the Western Isles

4.4.1 SWOT Analysis

Below is an analysis of the strengths, weaknesses, opportunities and threats (SWOT analysis) relating to the Western Isles seaweed industry.

Strengths

Weaknesses

1 The seaweed resource itself.

2 Harvesting experience.

3 Local knowledge and enthusiasm.

4 Clean waters, minimal pollution.

5 Variety of support mechanisms - WIC, WIE, HIE, DTI, EU.

1 Distance from markets and transport costs.

2 Higher cost to harvest/process weed than in other countries.

3 Probably less direct/indirect subsidies than other European countries harvesting brown algae.

4 Response of established competitors to attempts to penetrate new markets - eg undercutting on price, ensuring lack of access to best distribution channels, etc.

5 Increases in subsidies in other countries harvesting brown algae.

4.4.2 Discussion

The Western Isles seaweed industry is highly dependent on one market (alginates) and one sales outlet within that market (Kelco). It currently produces unprocessed seaweed with no value added, although a minimal degree of primary processing will be introduced in 1995. It is highly vulnerable to competitive supplies of seaweed to Kelco from other sources and any changes in Kelco's circumstances and requirements, yet has only limited prospects of other sales outlets into the bulk alginate market.

In these circumstances it seems clear that in order to develop the Western Isles industry must:

i) undertake a planned diversification into other markets for seaweed and associated products;

Diversification should proceed while strengthening links with the alginate sector which can provide the volume upon which a reasonably sized industry can be based. This will also allow time to carry out product and market development in the new areas. Diversification should concentrate on the areas of higher value highlighted in this report - i.e. specialist/health foods, cosmetics, possibly fertilisers. The first two named will be higher value than the fertiliser sector and with more opportunities for product originality/differentiation and developing a niche market. In volume terms sales in both foods and cosmetics will be lower, with more prospects of increasing volume in the food sector.

With regard to the strengthening of links with the alginate industry, it would be unrealistic to envisage a return to the levels of activity in the 1970s. Kelco do not believe that even one plant on the Western Isles could produce dried seaweed at a competitive price. However, a combination of the following three factors would enhance the ability to compete with other countries/regions for sales to Kelco:

· processing innovation

· energy efficiency/low energy

· integration with other processing, eg other seaweed products.

It is worth re-examining the situation in the Western Isles to see if the above could be achieved, perhaps with specialist grant-funded advice regarding processing and energy efficiency. It might be possible to utilise the Keose plant and the planned washing/milling plant on Benbecula for integrated processing for fertilisers, alginate and other markets.

Ascophyllum nodosum is commonplace in the alginate, fertiliser, and animal nutrition markets. It has more limited applications in the food and cosmetics sectors, and it may be that long term developments in these areas would be better to focus on Laminaria spp.

The integration of food processing with other seaweed production may prove difficult due to health and hygiene requirements, and this area may ultimately be more suited to a small, separate business receiving local/regional support for marketing and for start-up purposes.

4.4.3 Recommendations

The following recommendations are based on the above discussion and the principle of maximising strengths, minimising weaknesses/threats and exploiting opportunities as identified in the SWOT analysis in Section 4.4.1.

i) Incorporate funding for seaweed development within local and regional resource/business development initiatives, eg UIST 2000, LEADER II applications. Where appropriate, integrate within the marine resource management package when seeking external support, i.e. with fisheries, shellfisheries and aquaculture.

iii) Hold strategic discussions with Kelco regarding future developments in the Western Isles. Focus on Kelco's long term plans and ways in which the quality of the product can be improved to fit their processing requirements, eg batch consistency, timing of harvests/delivery.

v) Aside from business start-up grants/loans, local authorities and agencies should consider support for seaweed initiatives in three key areas where they tend to fail:

· research and product development

· quality assurance/control

· marketing.

Additionally, although perhaps outside the scope of this report, it is worth highlighting the potential for serious consideration of island based high technology developments such as the culture of microalgae envisaged by Scotia Pharmaceuticals Ltd.